Problem 1
Car firms buy raw materials (steel), intermediate goods (windscreens, tyres) and labour to make cars. Windscreen and tyre companies hire workers and also buy raw materials from other industries. What is the value added of the car industry (the three firms shown below)? $$ \begin{array}{|l|l|l|l|l|} \hline \text { Producer of } & \text { Output } & \text { Intermediate goods used } & \text { Raw materials used } & \text { Labour input } \\ \hline \text { Cars } & 1000 & 250 & 100 & 100 \\ \hline \text { Windscreens } & 150 & & 10 & 50 \\ \hline \text { Tyres } & 100 & & 10 & 30 \\ \hline \end{array} $$
Problem 2
GNP at market prices is \(£ 300\) billion. Depreciation is \(£ 30\) billion; indirect taxes \(£ 20\) billion. (a) What is the national income? (b) Why does depreciation cause a discrepancy between GNP and national income? (c) Why do indirect taxes enter the calculation?
Problem 5
Common fallacies Why are these statements wrong? (a) Unemployment benefit props up national income in years when employment is low. (b) A high per capita real GNP is always a good thing. (c) In 2010, Crummy Movie earned \(£ 1\) billion more at the box office than Gone with the Wind earned 50 years ago. Crummy Movie is definitely a bigger box office success.
Problem 6
Suppose a country is unable to borrow from abroad and must always equate the value of its exports and imports. If the private sector is saving a lot more than it is investing, is the government in surplus or deficit? Why?
Problem 9
GNP \(5 £ 2000, C 5 £ 1700, G 5 £ 50\) and \(N X 5 £ 40 .\) (a) What is investment \(I ?\) (b) If exports are 350 , what are imports? (c) If depreciation \(5 £ 130\), what is national income? (d) In this example, net exports are positive. Could they be negative?
Problem 10
Should these be in a comprehensive measure of GNP? (a) Time spent by students in lectures. (b) The income of muggers. (c) The wage paid to traffic wardens. (d) Dropping litter.
Problem 14
'Economists are preoccupied with what they can measure. GDP is so misleading an indicator of welfare that it is almost pointless to gather statistics about it, either for international comparison across countries or to assess how well particular governments are doing.' How useful is GDP? Could we easily have a better indicator?
